Which of the following transfer pricing procedures maximizes the company's profit by transferring at the differential outlay cost to the selling division plus the opportunity cost to the company of making the internal transfers?
A)economic transfer pricing rule.
B)effective transfer pricing rule.
C)efficient transfer pricing rule.
D)None of the answers is correct.

Question

Quizplus · Accepted Answer

The economic transfer pricing rule takes into account the differential outlay cost to the selling division (i.e. the cost that would have been incurred if the selling division had not made the sale) and the opportunity cost to the company (i.e. the cost of forgoing the most profitable alternative use of the transferred goods). This approach ensures that the company's profit is maximized and all costs are appropriately allocated among its divisions.

Which of the Following Transfer Pricing Procedures Maximizes the Company's